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Purchasing shares in an investment trust can have significant benefits for investors. These funds typically hold a variety of assets, reducing risk through diversification. These investment vehicles can also make good use of leverage (or borrowed funds) to boost returns during good times.
These are just some of the advantages that trusts offer. But one of the biggest problems for income investors is that many focus on returning cash to their shareholders through dividends and share buybacks.
Investment trusts can also retain 15% of the income they receive each year, which they can use to increase dividends in more difficult periods.
There are over 400 of these funds currently listed on the London Stock Exchange. Here are two of my favorites.
1. UK Wind Greencoat
I think companies like it UK Wind Greencoat (LSE:UKW) have significant investment potential as demand for clean energy takes off. Its growth prospects may receive a further boost if, as expected, planning rules for onshore wind farms are also relaxed.
Greencoat acquired the South Kyle onshore project in Scotland last month, bringing the total number of wind farms on its books to 48. Its portfolio is spread across the country, which in turn reduces the impact of unfavorable weather conditions on one or two places in the group. Profits.
Keeping wind turbines running is an expensive business. What’s more, harsher environmental conditions due to climate change mean that maintenance costs could rise significantly in the coming years. However, in my opinion, the benefits of the UK’s rapid transition from fossil fuels to renewable energy far outweigh this problem.
Greencoat stock carries a 6.8% dividend for 2023. And brokers expect its strong track record of annual dividend growth to continue for at least the next few years.
2. The PRS REIT
As its name suggests, specialist in residential rentals. The PRS REIT (LSE:PRSR) is a real estate investment trust. As a result, it has to distribute a minimum of 90% of annual rental profits as dividends, making it an attractive option for dividend investors.
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In fact, I expect this stock to pay big dividends in the years to come. Rentals are booming as new home supply fails to keep pace with demand – in PRS, like-for-like rental income rose 9.8% over the three months to September, the latest financial data showed.
The Royal Institute of Chartered Surveyors has forecast average UK rental growth of 5% over the next 12 months. But PRS’s focus on the family housing sector – where property shortages are especially acute – means rent increases here should once again outperform the industry average.
PRS has a dividend yield of 5.5% for this financial year (until June 2024). And as with Greencoat UK Wind, City analysts expect dividends to increase next year and continue to grow, lifting the yield even further.
